Sales tax on materials

There’s no single national rule. In many states, a contractor who installs materials into real property is treated as the final consumer: you pay sales tax when you buy the materials and build it into your price, rather than charging tax on the invoice. In others, you can buy materials tax-free for resale and charge the client sales tax on the materials you bill.

Some states also tax certain construction labor or services, or tax the whole contract under a gross receipts or contracting tax, and many treat repair work differently from new construction or capital improvements. Rules for tax-exempt clients, such as nonprofits and government agencies, vary too.

Getting it wrong is costly either way: charging tax you aren’t allowed to collect, or failing to collect tax you owe and paying it yourself at audit. Check with your state’s department of revenue, which usually publishes a guide for contractors, or ask a tax professional.

If your state taxes materials on the invoice, list materials separately from labor so the tax applies only where it should. BuildWell applies sales tax to materials only.